LEASE CLASSIFICATION TESTS The new lease accounting standard currently applies to all public companies in Check the the USA that file audited financial statements with the SEC. This U.S. GAAP rule Appropriate Box requires that both the Lessor and the Lessee evaluate every Lease Contract with a YES NO term, or maturity, greater than one year using five tests. It then requires that the Lease Contract is classified according to the results of the test. Please answer the following questions related to the lease classification tests. 1. Under U.S. GAAP can the lease classification tests be used to keep a NO lease contract "Off Balance Sheet"? 2. If a Lessee determines that its lease contract is a finance lease, is it YES likely that the Lessor will determine that this contract is a Sales-Type Lease? 3. A Lessor does not want to give up full control over a leased asset to any of its lessee clients. The Lessor also does not want to record a sale. Will a Sales-Type Lease accomplish the Lessor's objective? The Lessee decides that it must avoid the "front end loading" of lease expenses on its lease contracts. Can the Lessee accomplish this purpose by only using lease contracts that fail ALL FIVE of the lease classifications tests? . If the Lessee wishes to keep its lease contracts "off balance sheet" can YES the lessee accomplish this by agreeing ONLY to contracts with terms (maturities) of one year or less? NO 4. 5. Page 1